A wholly-owned subsidiary is a company whose stock is entirely owned by another company. The owner of a wholly-owned subsidiary is known as the parent company or holding company. Because the parent company owns all of the stock of the wholly-owned subsidiary, the parent company can control all of its activities. Moreover, under GAAP, all of the financial transactions of a wholly-owned subsidiary are consolidated with those of the parent company. Thus, all of the activities of the wholly-owned subsidiary are part and parcel of the parent company for both operating and reporting purposes. Why, then, does a company establish a wholly-owned subsidiary? A wholly-owned subsidiary is a separate entity for legal purposes. Thus the laws of the state or country in which the wholly-owned subsidiary is incorporated apply to the subsidiary, but not the parent company. |
